Landesbank Hessen-Thueringen will cut jobs, reduce expenses and modify its portfolio as measures the German state-owned lender took to meet regulatory requirements raise the cost of capital and liquidity “significantly.”
“The necessary optimization of our business processes will entail job cuts over the next four years,” Hans-Dieter Brenner, the bank’s chief executive officer, said today in a statement. The measures being forced on the bank by the regulator will mean “grave cuts.”
Europe’s top banking regulator told the bank, known as Helaba, and five other German lenders in December to raise capital as part of measures intended to restore confidence in their ability to weather the sovereign debt crisis. Helaba fulfilled the requirements after a state shareholder converted a form of capital used in Germany into one recognized by the European Banking Authority.
“The consequences for competition and profitability in the banking sector are considerable and force us to react,” said Brenner. The risk and earnings of some business will change, the company said.
Helaba said net income jumped 33 percent to 397 million euros from 298 million euros last year on higher net interest and commission income and as the bank set aside less money for risky loans. Brenner said the lender can post a “similarly good” result for this year as in 2011.
The German bank posted a 44 million-euro trading loss compared with a 148 million-euro profit a year earlier as spreads widened in the fourth quarter amid Europe’s sovereign debt crisis, according to the statement. The trading result may be “significantly positive” this year if markets improve, the company said.
The state of Hesse converted so-called silent participations at the end of last year, allowing Helaba to meet the EBA’s requirement for banks to have core a Tier 1 capital ratio of 9 percent or more after adjusting for losses on certain sovereign bonds.
Silent participations are a form of non-voting capital. A bank’s core Tier 1 capital ratio is a measure of its financial strength.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at firstname.lastname@example.org; Annette Weisbach in Frankfurt at email@example.com
To contact the editor responsible for this story: Frank Connelly at firstname.lastname@example.org